Encore Capital Reports Increased Earnings, But Misses Consensus Estimate

SAN DIEGO – Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the first quarter ended March 31, 2005.

For the first quarter of 2005:

• Gross collections were $65.9 million, a 3% increase over the $64.0 million in the same period of the prior year

• Excluding $4.0 million in collections resulting from the sale of the Company’s portfolio of rewritten notes in 2004, collections increased 10% over the same period of the prior year

• Total revenues were $50.5 million, a 19% increase over the $42.4 million in the same period of the prior year

• Net income was $7.5 million compared with $6.0 million in the same period of the prior year, a 24% increase

• Earnings per fully diluted share were $0.32, a 23% increase over the $0.26 in the same period of the prior year. (Editor’s Note: Thomson First Call analysts’ mean estimate on EPS for Q1 was $0.36)

“Our first quarter performance was in-line with our expectations and we have continued to generate solid levels of collections, revenues, and earnings per share,” said Carl C. Gregory, III, Vice Chairman and CEO of Encore Capital Group, Inc. “Despite the continuation of the challenging environment for purchases we’ve spoken about for several quarters, we were pleased with the increased collections. This increase is primarily attributable to the refinement of our consumer level account segmentation strategies, allowing us to penetrate the portfolios beyond our original and updated forecasts. We are also beginning to see the benefits of our reduced contingent interest expense. Our contingent interest was approximately 80% of the level incurred in the first quarter of 2004, and we expect this expense to continue to decline to approximately 60% of the prior year’s quarter by the end of 2005.”

First Quarter Financial Highlights
Revenue recognized, as a percentage of collections, was 77% in the first quarter of 2005, compared to 66% in the first quarter of 2004. The increase in the percentage of collections recognized as revenue in the first quarter of 2005 is primarily attributable to deeper penetration of portfolios and the timing of historical purchases.

Total operating expenses for the first quarter of 2005 were $30.3 million, compared with $23.3 million in the first quarter of 2004. The increase in operating expenses is largely attributable to the mix of collections. Collections from sales, for which there are little to no associated costs, were approximately $5.7 million lower in the first quarter of 2005 than they were in the first quarter of 2004. The Company also increased its collections from alternative channels. While the costs from some of these channels are higher, the penetration of the Company’s portfolio is deeper, resulting in higher net collections than if only the internal collection sites were utilized.

The Company spent $19.5 million to purchase approximately $530 million in face value of portfolios during the first quarter of 2005, a blended purchase price of 3.68% of face value. All of the portfolios purchased in the first quarter of 2005 were credit card receivables. The Company funded all but $2.1 million of these portfolio purchases from its own cash balance and repaid all outstanding balances on its new credit facility by the end of the quarter.

Outlook
Commenting on the outlook for the Company, Brandon Black, President and COO, said, “Our disciplined approach to the purchasing market and use of conservative estimates of future collections are two strategies that we believe will allow the Company to produce steady performance in a variety of operating environments. We continue to see improved liquidation of the portfolio, which is directly linked to the development of new proprietary scoring models that more effectively segment consumers into risk classes and the expanded use of alternative collection channels. In addition, our improved financial profile has lowered our interest expense as well as provided us the flexibility and financial strength to explore complementary acquisitions that can enhance our growth opportunities. While the current conditions in the purchasing market present challenges to generating bottom-line growth in the near-term, we believe we have built a solid foundation that can support the profitable growth of the Company over a longer time horizon.”

Conference Call and Webcast
The Company will hold a conference call today at 2:00 PM Pacific time / 5:00 P.M. Eastern time to discuss the first quarter results. Members of the public are invited to listen to the live conference call via the Internet.

To hear the presentation, log on at the Investor Relations page of the Company’s web site at www.encorecapitalgroup.com. For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

About Encore Capital Group, Inc.
Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at www.encorecapitalgroup.com.